Trump and Obama Promise to be Terrible Negotiators
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By Sally C. Pipes
President Barack Obama and presidential hopeful Donald Trump don't agree on much. But they've found common ground in pushing to upend the Medicare drug benefit.
Shortly before his victory in New Hampshire, Trump grumbled about government drug spending -- and called for Medicare to take over the role of negotiating drug prices from private insurers. President Obama's new budget plan similarly calls for Medicare to negotiate prices on drugs.
Both men claim the move would save the government money. But they're wrong. It will instead raise costs for seniors, deny them access to drugs, and dismantle the only portion of Medicare that has cost less than government projections.
The Medicare drug benefit, known as "Part D," uses market competition to deliver prescription drug coverage to seniors. Private insurance plans compete with one another for seniors' business, offering different premiums, deductibles, and levels of coverage. Seniors can pick the plan that suits their needs and the government subsidizes their premiums.
Today, nearly 40 million seniors are enrolled in Part D. On average, seniors can choose from 26 different drug plans. The competitive forces built into Part D have kept costs down. At an average of just $34 per month, premiums have been essentially flat since 2009 -- and are about 50 percent below where the government expected.
The competitive structure has kept costs down for taxpayers, too. Indeed, Part D costs are 45 percent below where the Congressional Budget Office initially predicted.
Not a single other government program boasts results like this.
Consider the rest of Medicare. At its launch in 1965, Medicare's Part A hospital insurance program was projected to cost $9 billion by 1990. The actual cost? About $67 billion.
Part D has been a resounding success. It has expanded drug coverage and cost seniors and taxpayers alike far less than expected.
Yet both Obama and Trump are dead-set on fundamentally changing the nature of the program. They believe Washington bureaucrats could force drug prices down further than private insurers.
But the CBO has consistently found that the government wouldn't be able to deliver any savings. As stated in 2009, "Granting the Secretary of HHS additional authority to negotiate for lower drug prices would have little, if any, effect on prices."
If this were ever acknowledged by Obama and Trump, they would almost certainly point to the Veterans Affairs drug benefit as proof that their proposal would drive prices down. But the VA doesn't negotiate prices -- it dictates them. Drug makers who can't comply with the VA's demands are left off the program's restrictive formulary. Indeed, of the 200 most popular drugs for seniors, the VA doesn't cover 37 of them.
Medicare would have to rely on a similarly restrictive formulary to realize any cost savings.
Declining to pay for the drugs seniors most need would end up costing taxpayers more money, since more effective medicines can avert healthcare spending by keeping patients out of the hospital.
President Obama has long fought for the federal government to have more control over our healthcare system. Redesigning Part D would help further that goal.
Trump is still new to public policy, so perhaps he'll reevaluate Part D. After all, as a businessman, he should appreciate the lesson Part D offers. Competition, not government meddling, is the best way to improve services and drive down prices.
Sally C. Pipes is president, CEO and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book, The Way Out of Obamacare (Encounter), was released in January.